Research Update: German Automotive Parts Supplier ZF Friedrichshafen AG Outlook To Negative; 'BBB-' Rating Affirmed

German automotive parts supplier ZF Friedrichshafen AG has signed a definitive agreement to buy commercial vehicle brake manufacturer WABCO Inc. for about $8.5 billion (€7.4 billion). ZF plans to fund the acquisition through new debt. On a pro forma basis, we expect the acquisition to increase ZF's S&P Global Ratings-adjusted debt-to-EBITDA ratio to about 3.5x, from a forecast 2.0x at year-end 2018. In our view, the acquisition of WABCO nicely complements ZF's product portfolio and we expect ZF to reduce leverage back toward 3x during the 24 months after closing. As a result, we are affirming our 'BBB-' long-term ratings on ZF and its senior unsecured debt. At the same time, we are revising our outlook to negative from stable.

...+ German automotive parts supplier ZF Friedrichshafen AG has signed a definitive agreement to buy commercial vehicle brake manufacturer WABCO Inc. for about $8.5 billion (7.4 billion). ZF plans to fund the acquisition through new debt. + On a pro forma basis, we expect the acquisition to increase ZF's S&P Global Ratings-adjusted debt-to-EBITDA ratio to about 3.5x, from a forecast 2.0x at year-end 2018. + In our view, the acquisition of WABCO nicely complements ZF's product portfolio and we expect ZF to reduce leverage back toward 3x during the 24 months after closing. + As a result, we are affirming our '###-' long-term ratings on ZF and its senior unsecured debt. At the same time, we are revising our outlook to negative from stable. + The negative outlook reflects the risk of a downgrade if increasingly difficult conditions in the automotive industry cause a further decline in ZF's operating margins and subsequently impair its ability to reduce leverage following the WABCO acquisition....

Research Update